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Friday, April 18, 2014

AB's Pricing Counteroffensive: The Sequel

Monday's post on Anheuser-Busch's latest effort to undermine the craft beer movement struck a chord with many readers, and also a few nerves. The story was shared on reddit.com and wound up getting hammered to the tune of more than 20K page views. Uncharted waters.

Since Monday, the Beer Business Daily has released some updated information on the rational behind the pricing strategy, as well as what's actually happening and what some industry people think about it.

The Angle
Anheuser-Busch has really nothing to lose with the $56 keg pricing in Washington and Oregon. Both are low share states for AB products. Plus, most of the volume sold as part of this promo is going through AB-owned distributors, which means they can spread the costs broadly. Very few independents are involved, as predicted.

With respect to brand equity damage, it may not happen. Many retailers will simply keep prices where they are and pocket the extra profit. If there's no discounting at the tap, consumers who don't read blogs like this one won't know what's going on and the brands involved (Shock Top and Goose Island) won't suffer any equity damage at all...beyond their affiliation with Anheuser-Busch.

As expected, the strategy is getting very little traction in craft-centric bars and pubs. These places aren't interested in offering marked down, marginal craft brands. Their customers would balk and walk. So most of the action is in mainstream accounts, which can make a few extra bucks selling stuff they already sell.

Risk for Craft
There are those in the industry, some quoted in BBD, who believe AB is testing the discounting strategy to see how many tap handles can be acquired. If successful, the strategy may be expanded. The way it becomes a problem for craft brewers is if AB is able to undercut pricing to the extent that retailers start demanding similar pricing from craft brewers.

Anheuser-Busch, if it wanted to, could broaden the effort by producing quality beer, which it could do at a fraction of what it costs craft brewers. That seems unlikely. Keep in mind that AB is not particularly good at brand building. Most of their strategic edge is wrapped up in efficiency. They are ruthless cost-cutters, not brand builders.

What they would likely do to expand the discounting campaign is acquire more craft brands. Once they have a controlling interest, they would dump that beer on the market at discounted prices as a means of pushing prices downward and sucking some of the profit out of craft beer. That's what they're doing with Goose Island and the strategy could be repeated.

In the end, any effort to undercut price will require time and coordination. Winning a few tap handles with cheap beer isn't going to do much, except maybe produce some local or regional price wars. For the strategy to work, AB will have to make a concerted longterm effort to undermine the profitability of craft beer. That's the risk for craft brewers, but you have to wonder if AB is up to it.

Goose Island
Some readers didn't like me lumping Goose Island with Shock Top. Oh well. The problem for Goose Island is that it is a wholly owned subsidiary of Anheuser-Busch. The once respected, independent brand is now nothing more than a pawn in AB's efforts to address declining market share. Right alongside the dreadful Shock Top.

Honestly, I've never had a Goose Island beer that was above average. The bulk of the Goose Island beer we see in Oregon is surely mass produced by AB. The highly sought-after Bourbon County Stout is rare and I haven't had it. However, I had their Illinois Imperial IPA last night a Belmont Station. This is not a standard issue Goose Island beer. It was okay, nothing more.

4 comments:

I don't know that you can criticize Goose Island and Shock Top on the one hand and say AB is no good at brand-building on the other. Reading through that titanic Reddit thread on your last post, I'd say that they have done a spectacular job of building the Goose brand. A ton of people jumped to their defense, which frankly surprised me. I'd call that an unqualified success.

The Goose project is one to watch closely. You may not like their mainstream brands--but you wouldn't have liked them in 2010, either. GI has a two-tiered project going on, with the more mainstream brands being produced in large quantities with all the intelligence AB can bring to bear on economies of scale. But they're also investing heavily in the Chicago-brewed specialty line. The new head brewer, Brett Porter--an old Oregon alum who worked at Portland and Deschutes--tells me Goose's barrel project is the biggest in the country, and they are competing on flavor with their stout, saison, and sour line. You may not like those (and you have to try them before you can properly assess the brewery), but claiming they've been mainstreamed is unsupportable. Of the bunch, Sophie is really spectacular.

None of which changes the thrust of your arguments, but I'd add these comments to fill in the picture.

Reading through the barrage of comments on Reddit, I figured most of the folks defending Goose were thinking of the brand prior to the AB buyout. Because the mainstream brands are pretty bad.

The specialty program may turn out to be an example of what AB can do if they commit to doing things right. I look forward to trying those beers with an open mind when I have the opportunity. But I wonder how readily available those beers will be. Most of what we see from them is the mediocre standards. In that sense, Goose has been mainstreamed. And it is a pawn in the pricing ploy AB is playing.

I agree that Goose Island is nothing special for the most part but Jeff's right that Sophie is great. Bourbon County is, too, both the regular version and the coffee version that was available in limited quantities out here. It will be sad when they stop making them or change the recipes to fit in with AB guidelines but I suspect it will be inevitable.